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The Impact of Venture Capital Screening

Author

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  • Rustam Abuzov

    (University of Lausanne; Swiss Finance Institute)

Abstract

I study the effect of limited attention on resource allocation by venture capitalists. Using engagement in the IPO process as a measure of distraction, I document that investments made by inattentive venture capitalists into new portfolio companies tend to underperform. Such companies are 7% less likely to go public or get acquired, and also exhibit lower exit multiples. The adverse effect of distraction is present only in the vicinity of the distracting IPO and manifests itself both for individual partners and venture capital funds. Overall, the results indicate that the scarcity of attention hypothesis holds in the context of deal sourcing and screening in venture capital, highlighting the presence of skill in the company selection process.

Suggested Citation

  • Rustam Abuzov, 2019. "The Impact of Venture Capital Screening," Swiss Finance Institute Research Paper Series 19-14, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1914
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3353343
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    Cited by:

    1. Duncombe, Samuel & Park, Min & Tarsalewska, Monika & Trojanowski, Grzegorz, 2023. "ESG positioning in private infrastructure fundraising," International Review of Financial Analysis, Elsevier, vol. 90(C).

    More about this item

    Keywords

    venture capital; general partner; limited attention; screening; IPO;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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